World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

NEW YORK (CNNMoney.com) -- Three more banks shut their doors Friday, according to the federal government, bringing the total number of failures up to 32 in 2009.

The first failure was a wholesale banking operator that served 1,400 other lenders across the country and was the fifth biggest bank failure during the current recession in terms of assets.

Georgia "bankers' bank": The Federal Deposit Insurance Corp. said in a statement that it created a bridge bank to take over the operations of Silverton Bank, National Bank, headquartered in Atlanta.

Unlike the other 30 banks that have failed so far in 2009, Silverton Bank did not take deposits directly from the general public or make loans to consumers. Instead, it was a "bankers' bank," offering a wide variety of services, such as foreign wire transfers, as well as clearing and cash management, to other banks.

Silverton was cooperatively owned by community banks throughout the Southeast and was heavily invested in loans to real estate developments in Florida, Georgia, and other parts of the Southeast, according to Christopher Marinac, managing principal of financial firm FIG Partners LLC based out of Atlanta, Ga.

When real estate values sank in the current downturn, the assets backing those properties also lost their value. The Southeast has seen numerous regional banks topple as the housing bubble burst.

At the time of its closing, Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which are expected to be within the FDIC's insurance limits.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion, making it the fourth costliest bank failure since the start of the recession. "It is a bigger hit to the insurance fund than they have seen in the last couple weeks," Marinac said. "This is a bigger issue than we have seen in awhile."

Silverton served banks in 44 states and operated six regional offices. The FDIC created a bridge bank to take over the assets of the institution and has contracted The Independent Bankers Bank, out of Irving, Texas, to assist. The FDIC does not expect to see any significant impact to the bank's clients, at least in the near term.

However, the bridge bank only plans to be operational for 60 days, with a possible 30-day extension. When the bridge bank services terminate, the banks that were serviced by the cooperatively owned bank will have to go out and find another institution to take care of those services.

"There is no clear cut answer on a situation like this," said Marinac. "This is a little bit more complex and therefore there are more uncertainties about how this will unfold."

Thus far, the FDIC has not been able to find another wholesale bank to agree to take over Silverton's operations. The FDIC will attempt to sell off the assets, but it could pose a challenge to find a buyer for risky commercial loans. However, the FDIC could try to find a buyer by discounting the debt. "Everything has a price," said Marinac.

New Jersey: State regulators shut down Citizens Community Bank Friday night, and named the FDIC as the receiver. The Ridgewood, N.J.- based bank had total assets of approximately $45.1 million and total deposits of $43.7 million as of Dec. 31.

North Jersey Community Bank, of Englewood Cliffs, N.J., has agreed to assume all of the deposits of the failed bank. The failed bank's single office will reopen Monday as the North Jersey Community Bank.

North Jersey Community Bank paid a premium of 0.67% to acquire all of the deposits of the failed bank and has agreed to purchase approximately $11.5 million in assets. The FDIC will hold onto the rest of the assets to dispose of later.

The FDIC will continue to fully insure individual accounts up to $250,000 through the end of 2009.

Utah: On Friday evening the FDIC also became the receiver of America West Bank, after the Utah regulators closed the institution. The Layton, Utah-based bank had total assets of approximately $299.4 million and total deposits of $284.1 million as of Dec. 31.

Cache Valley Bank, based in Logan, Utah, is assuming all deposits, paying discounted price of $352,000. It also agreed to buy nearly $11 million worth of America West's assets and took a 30-day option to purchase loans at book value. The FDIC estimates that the cost to the Deposit Insurance Fund will be $119.4 million.

America West's three branches will reopen Monday as Cache Valley Bank outposts.Checking accounts, debit cards still work: Through the weekend, depositors of both Citizens Community Bank and America West Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on either of the failed banks will continue to be processed, and the FDIC said loan customers should continue to make their payments as usual.

Stress tests awaited

Local banks have been shutting down in droves as the recession has made it harder for customers and businesses to pay their loans. Nearly every Friday so far this year, at least one bank has failed. Last week, four regional banks were shuttered.

Even as the government has committed unprecedented amounts of money to increase liquidity and jumpstart the economy, the pace of bank failures has accelerated. In all of 2008, 25 banks failed, compared with 2009's 31 banks.

It is not only smaller, regional banks that have felt the pressure of the recession. The nation's largest banks have also been hit by rising default rates and a decline in business spending.

The assessment of the bank's health was expected to be made public May 4, but an announcement from the Treasury Department Friday indicated that results would be delayed until May 7.

Market watchers are anxiously awaiting the results of the stress tests, which have been designed to assess the banks' preparedness to weather further downturns in the economy, including further increases in unemployment and decreases in home prices.

So, the transactions are starting to get a little more complex, and more institutions are being seized without having a buyer in hand.

While it may appear that these failures are insignificant, what is happening is that the debts are mostly moving from one institution to another with the government’s backing, of course. This process, while clearing out the small and weaker players, does not clear out the debt and it leaves consumers with fewer banking choices and larger banking institutions to play with.

So, the fringes are fraying and getting clipped away. Large shifts always start at the fringes and thus these failures are important and should not be glossed over.

Meanwhile the really large institutions, all of which are truly insolvent, are being kept alive with government money and false/ completely phony accounting with the government’s blessing and backing, of course.

Again, the “Stress Test” is really no stress whatsoever. It’s a sham developed to divert attention and distract people away from the real issue while they are being robbed. Oh yeah, it’s also an excuse to “inject more capital” into the banks which is code for STEAL FROM THE AMERICAN TAXPAYER.

Meanwhile, they are milking this sham for everything its worth, now delaying the already delayed “results” yet again. And the market monkeys use this carrot to pump the financials or at least hold them up for as long as they can to draw in as many retail investors as possible to distribute their “equity” and overvalued debt to those buying into a “once in a lifetime opportunity.”

And what an impressive rally it’s been in the financials… why this rally is of historic proportions, they say, you better get in before it’s too late! Yes, the XLF did rally an astonishing 81% in the past eight weeks!! But let’s look at the chart a little further out than 8 weeks for those who didn’t catch the XLF below $6, shall we?

Here’s a 2 year weekly chart of the XLF and you can see that it went from a high of over $36 to today’s $10.65 price, a DROP of 71%! Is the latest rally really any different than the previous ones of this bear market? Look at the volume pattern, that’s where you find confirmation or a lack thereof… and I’m seeing a very large divergence there between rising prices and falling volume. Does it really look different than the other bear market rallies?

And funny, but the stair step nature of this decline looks very similar to another and the comments along the way sound familiar too:

While this MAY have been THE bottom in the financials, you have to ask yourself what's changed FUNDAMENTALLY over the past two years in the banking system that will spark and initiate new growth and new profits? Yes, spreads have widened allowing the banks to arbitrage profits from the consumers… but have the debts cleared the system? And I don’t mean the banking system, I mean the economy. The answer is no either way. The only structural change has been letting accounting standards fall back to the banker’s good old mark-to-fantasy/ take a bonus ways. Oh, and the industry has consolidated its power and grip on politicians further – there’s progress.

Be my guest, go ahead and donate your money to their cause. Not me.

I will say it again. The only “once in a lifetime opportunity” here is to sell this rally and get positioned for what’s coming in the months and years ahead. It won’t be pretty, the banking system, the consumer, and the entire economy have already hit the wall...

Friday, May 1, 2009

I know that I’ve been neglecting fans of the good old rock and roll lately, so I’m going to give you a some Santana to set the mood and to let you know Nate’s still on the job, and that somebody's winning, right now I think it's the bond market vigilantes...

It appears that I correctly labeled THE peak, as it has now been 3.5 months and global intervention and Quantitative Easing (QE) have not been able to keep long term rates in the bond and treasury market at those extreme lows. As I said in that article, once the Fed lowers their target rate to zero, you know you are near the end.

As the following chart of TLT (20 year bond fund) shows, we experienced a parabolic rise followed by a parabolic collapse. The collapse was indeed halted via intervention for about 3 months, but it has now resumed with technical breakdowns occurring since Bernanke and the FOMC failed to announce further actions or a larger pool of money to buy our own debt with phony trumped up dollars. You can see that we have now retraced more than 78.6% of the last parabolic rise, and places the odds high that we will retrace all of it:

Here’s a one month chart showing how fast the selloff and breakdown is occurring in bonds over the past few days:

And the ten year is nearly as bad.

Remember, most fixed mortgage rates are tied to the ten year rate. Although mortgage rates are at historic lows, as seen in this chart by the fed, they are at those lows only because the fed has been buying up hundreds of billions worth of near worthless Fannie and Freddie mortgage debt:

While conditions in the bond market here are oversold, returning prices up and rates lower will now require very difficult tradeoffs, but a short term bound could happen at any time making a levered bet on the bond market risky. Those tradeoffs would include letting the equity market go in order to preserve low rates.

These rates are NOT sustainable, so I would suggest that if you haven’t refinanced real estate that you should do so immediately.

Now, a lot of people think that with rates this low, it’s time to BUY real estate. The exact opposite is true. The general rule is that you should sell real estate when interest rates are at or near historic lows and you should buy when they are at historic highs. Look at this chart of interest rates and think about it:

Had you bought real estate in 1980 at the peak in interest rates and sold recently, you would have done terrific, especially if you would have sold like I did in 2005. Since about the year 2000 rates have been held artificially low courtesy of your morally and ethically challenged Federal Government. But think about the interest rate equation. Buying a home, if you can afford the financing, at a high rate of interest means that you will be buying when PRICES are low. Yes, your payments are higher, but if you are financing then you refinance when rates are low, like now. But what you don’t do is buy real estate when rates are low because that’s when prices are high. Once interest rates come up again, people will not be able to afford as much house and prices will continue to fall.

No, your government does not have the power to force rates low forever. They have reached their limit NOW.

And I’m not the only one who thinks so. Check out Mike Larson’s latest update from just this morning:

And now, they’re getting their heads handed to them! Long bond futures have plunged a whopping 20 points — from 143 in mid-December to less than 123 yesterday. The yield on the benchmark 10-year Treasury Note has exploded from a fall low of 2.06 percent to 3.11 percent this week — a gain of 51 percent. Key technical levels are giving way all over the place.

Fortunately, you had the market’s playbook. You were told in no uncertain terms — right here in Money and Markets — that the Treasury market was caught up in a huge bubble, one that was destined to pop.

As I said in early December:“The truth is the U.S. government is going to have to flood the market with a wave of Treasuries the likes of which the world has never seen. And just like any other market, the bond market reacts to supply and demand.

“Too much supply and not enough demand should drive prices lower.

“Bottom line: There are lots of reasons to believe this Treasury rally is unsustainable, and that a day of reckoning is fast approaching.”

Now, let’s talk about why this is happening … where we’re headed next … and what the implications are for you and your investments.

The Biggest Debt BingeIn World History

The immediate catalyst for this week’s bond market break? The Fed’s refusal to increase the amount of Treasuries it has committed to buy. The Fed said at a policy meeting several weeks ago that it would purchase up to $300 billion in Treasuries, and it didn’t alter that target at this Wednesday’s gathering.

But I believe the problem is MUCH bigger. For starters, as I mentioned in my Money and Markets column last week, the Federal Reserve has been backing up the truck and buying every crappy piece of paper it can get its hands on. Lousy residential mortgages. Crummy commercial real estate loans. Toxic CDOs, credit card bonds, student loans — the Fed is buying or loaning money against anything and everything!

I warned that at some point, this would be viewed as bearish for the dollar. I also said it would only add to worries about the perceived credit quality of the U.S. itself. We’re starting to see the dollar get clubbed now and clearly, U.S. debt is getting trashed.

It’s not just the Fed, either. The U.S. Treasury is doing its part, too. Indeed, we’re borrowing and spending the country into oblivion!

This week alone, Treasury sold a record $26 billion in seven-year notes, a record $35 billion in five-year notes, and $40 billion of two-year notes. Next week, we’ll get a record $71 billion in longer-term debt issuance.

Total net borrowing needs for the second quarter are now up to $361 billion. That’s up 27-fold from $13 billion a year earlier and more than double the previous estimate of $165 billion.

We just learned the Treasury will start selling 30-year bonds every month, as opposed to eight times a year. And speculation is running rampant that the U.S. will soon start auctioning off 50-year bonds! All this issuance is needed to fund a federal budget deficit that’s projected to hit at least $1.75 trillion this year and $1.2 trillion in fiscal 2010.

The Implications For You …

First, I’ve implored you to dump long-term bonds for several months now. If you followed that advice, you saved yourself a world of hurt. The average long-term government bond fund has already lost 11.2 percent in value this year, according to Morningstar, and we still have eight months to go!

My advice remains the same: Get the heck out of the LONG-TERM part of the bond market while you can. Stick with SHORT-TERM Treasury bills. They are not subject to the same price risk and credit concerns as longer-term notes and bonds.

…Meanwhile, if you’ve been waiting to refinance your mortgage, I wouldn’t hold off any longer. The Fed has been trying to manipulate the bond market in order to hold rates down. But the cumulative “sell” decisions of investors around the world are starting to overwhelm Bernanke & Co.

Thirty-year mortgage rates are still hovering in the high 4 percent area. But they’ll climb if bond prices continue to tank.

Until next time,

Mike

The bond market Bozos of Greenspan and Bernanke espoused the Keynesian deficit spending mantra during down cycles but forgot that the other half of that equation which is that you must save money during the upcycles if you wish to even the cycles out. Simply printing during economic dips only leads to more economic distortions and digs us deeper and deeper into debt. Just remember that every time you hear the word “credit” you are in fact hearing the word DEBT. Our marketing based politically correct Alice in Wonderland World doesn’t like labeling things in a negative light. And that’s a big part of the problem. Can’t tell little Johnny that he can’t sing, you might bruise his ego. Of course encouraging off tune Johnny to sing only distracts him from gravitating to the things he is really good at. Funny how that works. Real praise for real performance. Real criticism when it’s deserved.

Well, sorry to the p.c. crowd, but this economy is riddled with debt, broken morals and ethics, a one way rule of law, math that does not work and is IMPOSSIBLE to pay back and I really don’t care if that brings you down. It must be dealt with NOW and by adults who can both tell and handle the truth!

Hey, at least Joe the Plumber here can sing the truth while another economic Bozo simply grins behind him – how true. And truer words were never sung, “…we owe our souls to the Federal Reserve.”

Two Trillion Tons - Sung by Joe the Plumber:

Now I know that a bond market collapse is not a funny subject matter, but you have to admit Joe the Plumber pretty much nailed it!

Futures are up slightly after climbing slowly overnight (now down as I post):

Long bonds are getting slammed again, and the dollar is up slightly with gold down again. I hope everyone’s paying attention to the bond market, this is a very significant breakdown, one that has to have Bernanke’s attention, I know it has the rest of the world’s attention as rates are going higher:

May 1 (Bloomberg) -- Federal guarantees by 13 countries on more than $400 billion of financial company bonds are punishing the AAA-rated World Bank Group with record borrowing costs -- an indication of what can go wrong when government gets in the way.

The Washington-based World Bank, founded in 1944 to rebuild economies after World War II, sold $6 billion of three-year notes March 26 priced to yield 30 basis points more than the benchmark for such borrowings. The so-called spread was the widest for a dollar-denominated bond offering by the supranational lender, said George Richardson, the institution’s head of capital markets, in an interview.

Just seven months ago, the World Bank paid a record low 35 basis points less than the midswap rate, a market measure for exchanging fixed- and floating-rate cash flows. The sudden rise in World Bank relative bond yields is an unintended consequence of sales of taxpayer-backed debt by more than 50 companies, including Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. While these special offerings were designed to bring stability to the credit markets after $1.4 trillion in losses and writedowns in the past 28 months, no one realized the World Bank would be depreciated by such government policies.

“Governments started announcing guarantees for their banks, and then the whole world changed,” said Richardson, a former Goldman Sachs banker.

Rising SalesRising risk premiums are also affecting the Washington- based Inter-American Development Bank, which lends to Latin American and Caribbean countries, and Germany’s state-owned Kreditanstalt fuer Wiederaufbau, whose credit supports housing, education and small business.

Banks and financial companies worldwide sold 320 billion euros ($424 billion) of state-guaranteed debt since October, denominated in euros, dollars and U.K. pounds, according to Leef Dierks, a fixed-income analyst at Barclays Capital in Frankfurt.

They may issue a total of 900 billion euros in bonds for all of 2009, Dierks said.

The total includes $235 billion of dollar-denominated debt in the U.S. with backing from the Federal Deposit Insurance Corp. as of yesterday, according to data compiled by Bloomberg.

Lenders backed by multiple governments, known as supranationals, have the flexibility to borrow billions in multiple currencies and at any part of the yield curve, making their bonds among the most liquid securities.

Financial AcumenThe financial acumen of the World Bank, which pioneered the first use of derivatives to obtain Swiss francs and German marks by exchanging cash flows with International Business Machines Corp. in 1981, hasn’t protected the institution from widening borrowing spreads.

Average yields relative to midswap rates on dollar- denominated supranational debt rose to 164.4 basis points, as of yesterday, from 46.8 basis points at the start of October, according to the Credit Suisse Liquid U.S. Corporate Sovereign Spread Over Swap index.

The midswap index, which contains bonds sold by the World Bank and the IADB, reached a record-high of 217.4 basis points on Jan. 2, Credit Suisse data show. A basis point is 0.01 percentage point.

A benchmark for borrowers, the midswap index lies between the bid and asking yields on contracts exchanging fixed for floating interest-rate cash flows.

Double BorrowingsThe World Bank, which now finances AIDS prevention in Botswana, will more than double borrowings to as much as $35 billion this year to help provide food, health and education services through the International Bank for Reconstruction and Development, Richardson said.

Robert Zoellick, the bank’s president, recently announced plans for $100 billion of new loans over the next three years to relieve the recession. The lender issued $1.5 billion of five- year notes on Oct. 1 at 35 basis points below the midswap rate, a record low for that maturity, according to Richardson.

The International Monetary Fund, a Washington-based agency of the United Nations that monitors the global economy, may sell its first bonds to China and Brazil to raise money to combat the downturn. IADB borrowings will total $15 billion to $20 billion this year, up from $6 billion to $7 billion in 2007 and $11 billion in 2008, said Soren Elbech, the bank’s treasurer.

While development lenders’ spreads more than tripled since October, the yield premiums on World Bank and other supranationals’ bonds have narrowed since their sale as corporate credit markets begin to heal.

Passed OnThe three-year notes sold by the World Bank on March 26 rose to 100.4 cents on the dollar as of yesterday to yield 50.8 basis points more than Treasuries, according to Bloomberg data. That’s down from 82.2 basis points when they were issued.

Increased financing costs are being passed to borrowers, according to Horst Seissinger, head of debt capital markets at Frankfurt-based KfW, which has a direct guarantee from the German government.

Well, that’s what happens (higher yields) when one stimulates every aspect of the world’s economy and guarantees every corporation on the planet then issues complex and opaque instruments in an attempt to squeeze ever increasing amounts of debt into the system.

I got a good chuckle this morning reading about the new government plan to provide “cash for your clunker.” I started thinking about my young son, just about to exit high school and how attractive it might be to be paid more than his paid for old car is worth as an incentive to buy a new one. Of course it is being sold as a pollution solver, but the truth is that if he were to do that, he would go from being free of debt to being a debt slave, all sponsored by the fine people of your government.

And the Senate just yesterday voted down a provision that would have let bankruptcy judges modify loan agreements for individuals filing bankruptcy and at risk of losing their homes. It’s a rule of law thing they said. Of course the rule of law only applies to ordinary citizens, evidently, and not to corporations. See, that’s the current problem. It’s not that there aren’t laws, it’s that the laws are blatantly being applied unequally and every decision favors corporations. I wish the rule of law applied to everyone equally, and especially to the banks and politicians. Armstrong is correct in that capital formation is much more difficult when it is perceived that there is no rule of law.

And the bankers argue over the “stress test” results and decide to delay their release so that they can massage and manipulate the wording just right. You see, the porridge must be neither too hot nor too cold for little miss market, she couldn’t handle the truth, and that certainly isn’t the point.

And speaking of rule of law, the administration finally allowed an automaker to enter bankruptcy. Congratulations. Notice how through all the hoopla the President and no one mentioned the fact that all the plants would be shut down immediately. No, he was touting how many jobs he was saving.

Let me ask you this… when was the last time America produced a major new auto manufacturer? Not in your lifetime? Why is that? Why are new manufacturers springing up in places like Korea and China, but not here?

I would contend that it’s for the very moral hazard reasons that are occurring now. Namely, the big corporations run the government. Chrysler should have been allowed to fold decades ago. They are now a two time loser and keeping them around may just net the world another K-car piece of crap, but it won’t net you new and exciting innovative products that are made in America. No, it will net you an indebted nation, one that cannot possible pay its bills and it will net you lazy and complacent management and a hammered down middle-class.

This is not the end of our problems in America people, they are truly just beginning.

In regards to the rest of the news, most of it is just a distraction. I’m going to say this to all those who follow my writing, it is now time to exit the market again. The risk of holding equities is too high. Yesterday’s 888 top may be a top that holds. If it doesn’t, the upside potential here is limited.

And as I’ve been typing the futures turned slightly negative. Keep in mind that at some point today the short term stochastics are going to reach oversold… there’s a key uptrend line to watch at about SPX 866. Below that is bearish.

Thursday, April 30, 2009

I feel privileged to have brought you a collection of Martin Armstrong’s recent works. His insights are valuable, I believe, to society and to our markets. He has a unique understanding of cycles and market dynamics while his legal problems and jail experience have certainly given him unique insights into the rule of law as he clearly explained in But They Can't Do That!

I do not know Mr. Armstrong personally and have never met him. I am not an attorney and do not have personal knowledge of the merits of his case or the case of the government. Therefore, I must remain agnostic in regards to guilt or innocence, but I am not agnostic in regards to whether due process has been served in his case, nor do I waffle in stating that it appears he has been forced into confinement for a period of time longer than is the standard for the alleged crime.

Below, I present ALL the information he just released in an attempt to make his case in public. It will be controversial, that is why I agreed to post it. Debate on this subject is healthy, in my opinion, just keep in mind that we are viewing only one side. I would ask than anyone with legal expertise in these areas please feel free to offer your opinion on what he says or please share any background or supporting information you may have, even if you do so confidentially via email or in the comments section below.

Some of the things he has experienced in prison are shocking as he describes in Behind the Curtain:

Click on picture to read, use back browser to return:

At the beginning of this month, Martin filed the following motion and I understand that the SEC has agreed to review his case. He makes some very serious accusations about the SEC and others:

Click on "more" and "print" if desired. Toggle full screen in upper right corner:

Initially held in prison for years on contempt charges, Martin claims that the SEC conspired with and controlled the judges appointed to oversee his case:

He goes as far as to accuse the system of torture that led to his “confession” in an attempt to force some sort of release date (now Sept., 2011), because prior to that he was being held indefinitely and asked to provide something he claims he doesn’t possess:

A little investigation revealed that the signator of that report happens to know a little bit about complex financial transactions and WORKED FOR THE SEC. He now works for Capstone Advisory Group, LLC and boasts a very impressive background:

Background

Michael M. Mulligan is a Managing Director of Capstone Advisory Group, LLC, and is based in the Washington, DC office. Prior to joining Capstone, Mr. Mulligan was the Executive Director of FCL Advisors, Int’l, Inc. As a former Senior Counsel for the Division of Enforcement at the U.S. Securities and Exchange Commission, Michael specializes in consulting for clients in the areas of securities fraud, forensic accounting, complex financial fraud, and corporate and disclosure controls. Other areas of service involve business and lost business valuation, contract damages, broker/dealer suitability and domestic and international funds tracing. He is a Certified Public Accountant, Certified Fraud Examiner, and is a licensed attorney in the Commonwealth of Virginia and Washington, DC.

Cases

During his 20-plus year professional career, Michael has consulted with companies and/or investigated cases involving a wide range of financial and legal issues. He has worked for 3 years as an auditor in public accounting and 3 years as an accountant in the Division of Corporation Finance at the Securities and Exchange Commission (SEC). Additionally, he worked for 5 years as an attorney-investigator-prosecutor in the Division of Enforcement of the SEC, and then spent 4 years managing a 40person legal and financial consulting office in Kiev, Ukraine.

Industry Experience

As an attorney at the SEC, Michael litigated fraud claims and acted as lead counsel on several complex securities fraud investigations. Michael has investigated and/or prosecuted a wide range of cases involving fraudulent financial statements. Such cases were based upon allegations that issuers had improperly “managed earnings;” improperly accounted for acquisition and/or restructuring charges; prematurely recognized revenue; or violated the books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act. He has also worked on cases involving insider trading, improper markups on securities sales, market manipulations through complex trading schemes, savings and loan fraud and generic fraud in the offering.

Armstrong offers up several articles written about him and his case for background:

The above article came from a list of articles Martin suggested reading about him and his case:

Us vs ZichettloKrisMarty wanted this posted along with everything else regarding his innocence.

So, that’s a lot of information to digest about a very complicated case, and as I mentioned, it’s one side of the story. My life experience teaches me not to dismiss what he is saying. I believe that judges, the SEC, and others sometimes think they possess powers that were never given to them, and in some instances they wield those self-given powers in ways that are against the principals found in our Constitution. I think his case should be reviewed, but it should be reviewed by a neutral party, not the SEC.

I know of a lot of criminals who deserve what Armstrong is going through, or worse, and are not only walking free, but they are calling the shots (hear me Hank Paulson?). Again, I appreciate input from anyone with legal expertise or experience in matters such as this. Also would love to see his case garner more media attention, so anyone in the media seeking a good investigative story let me know and I WILL hook you up.

Once again most of the meaningful moves are happening overnight when most people have no chance to act unless they are managing their positions correctly with stops. At any rate, the /ES reached 887 this morning which is just below the SPX 890 area where there is a powerful uptrend line that should offer resistance. Here’s a chart of the overnight action:

It sounds like Chrysler is going to file bankruptcy, possibly today. This is what should have happened a long time ago. Actually Chrysler should have been allowed to fail back in the early ‘80s before the K-car. This whole bailout mantra is moral hazard in the extreme and America will pay the price dearly in the long run as the same losers are allowed to operate, dominate, and squeeze out new entrants. When was the last time a new American automobile manufacturer was allowed to flourish? Too big to fail is total BS, it is in America’s interest to let the big guys fail when they fail.

Unemployment claims fell 14,000 down to 631,000 last week. Yet another week above 600k, and another new continuing claims all time record at 6.27 million.

So, this never ending rally continues to gap up as more and more believers think the banks and the consumers are holding up just fine. I assure you that without government guarantees behind everything and their complicit help in hiding the true value of assets, that even the façade of a declining rate of free fall wouldn’t be supported. I will also assure you that people buying stocks at this level are about to be taught another very sad lesson in the continued robbery of America.

While we may touch 890 today, I do not believe we will be able to break that level at this time, at least not by any significance.

I am working on assembling some documents that Martin Armstrong is offering as “proof” of his innocence and I will present those probably later today or tomorrow. This will be controversial, I’m sure, and that’s exactly why I’m going to post them. While I am going to remain agnostic as long as I only have one side of his personal case, the issues he raises about the rule of law are absolutely correct and critical to understand about what makes an economy strong and vibrant.

Wednesday, April 29, 2009

Well, it appears that first quarter growth was much slower than the bulls thought, with the GDP coming in at -6.1%. Economists were expecting a drop of 4.7%. Fourth quarter ’08 growth’s final revision put it slightly weaker at -6.3%.

Futures are still up as they have been ramping all night long in what has become typical gap fashion. In fact, as of late almost all the real action has come overnight, and I’m pretty sure that not a healthy indication. Note that the overnight uptrendline was just broken and the /ES is at about 858:

I’m also fairly certain that the futures would have sold the GDP report harder except for the fact that Benny and the boys get another chance to manipulate the markets with their FOMC meeting announcement which should occur about 11:15 Pacific, 2:15 Eastern. I will not be at all surprised if they announce a larger pool of “money” for their circle jerk QE/destroy America plan.

The dollar is weaker this morning and bonds, which fell on their rear yesterday, are only slightly up this morning. Several more bond auctions occur today as they attempt to finance their folly and fight the math which always wins in the end.

MBA purchase applications fell slightly last week, dropping by .6%.

And then there’s the swine flu and the fact that America has now seen its first death from it, a 2 year old boy in Texas. Texas now has 64 confirmed cases and the last I heard last night CNN was reporting that Mexicans blame close to 160 deaths on the virus. There’s a lot to this story and I’ll have more later.

And we’re learning that 6 of the 19 “stress tested” banks will require addition capital. This is such a joke, I can’t even stand to write about it. The central bankers all sit around and dream up schemes to hide assets, fool the American public, and rob the taxpayers of this nation with the complicit help of our own damn politicians. It’s disgusting, criminal, and certainly not what our founding fathers envisioned, it is exactly what they feared.

At any rate, we’ll have to see what fun and games Benny and the Jets have in store for us with the FOMC…

April 28 (Bloomberg) -- Federal Reserve officials are relying on interest paid on bank reserves to help stem inflation once the economy stabilizes, spurring some former insiders to intensify their warnings that consumer prices may soar.

By paying lenders to keep cash on deposit at the central bank, the Fed is seeking to prevent the money being poured into the broader economy, potentially pushing prices higher. The strategy is a gamble: interest on reserves last year failed to stop the benchmark interest rate from falling below the policy makers’ target. Officials may discuss the issue at their gathering today and tomorrow in Washington.

The debate is likely to intensify as indicators suggest the worst of the recession is past, with prospects strengthening for growth in 2010. Once the economy does turn, Chairman Ben S. Bernanke and his colleagues will need to contend with the consequences of more than doubling the Fed’s balance sheet to $2.2 trillion, analysts said.

“You’ve got the raw material there for a rapid monetary expansion and credit expansion,” said former St. Louis Fed President William Poole, a senior adviser to Merk Investments LLC of Palo Alto, California, and a contributor to Bloomberg.

Investors’ expectations for inflation are climbing amid signs the grip of the financial crisis is easing. One measure of 10-year inflation expectations, taken from the difference between yields on 10-year Treasury Inflation Protected Securities and regular Treasuries, climbed to 1.55 percent yesterday, the highest level in almost seven months.

‘More Aggressive’Policy makers “have to be more aggressive than in the past about stopping inflation,” said Allan Meltzer, the Fed historian and professor of political economy at Carnegie Mellon University in Pittsburgh.

Bernanke said in an April 14 speech in Atlanta that discussions about how to withdraw the Fed’s monetary stimulus once the recovery takes hold “have occupied a significant portion of recent FOMC meetings.”

The Fed’s Open Market Committee may tomorrow leave its benchmark rate target at zero to 0.25 percent and maintain its goals for purchases of Treasuries and mortgage securities, economists said. An announcement is expected around 2:15 p.m.

Congress approved in 2006 the paying of interest on reserves from 2011. Bernanke requested last May that the date be moved forward so the central bank could have a tool to help keep the federal funds rate closer to the target rate while it flooded the banking system with billions of dollars of cash.

After gaining congressional approval, the central bank began paying interest on reserves in October.

Curb PricesSome former Fed officials are skeptical the new policy instrument will enable the FOMC to curb an increase in prices.

“It doesn’t sound to me like much of an exit strategy,” said Robert Eisenbeis, chief monetary economist for Cumberland Advisors Inc. and former research director at the Atlanta Fed. “There is a big risk of inflation.”

Unlike during previous recoveries, when banks had to raise additional funds to begin making loans, excess capital is already on their books, Poole said. “Banks will be able to fund new loans by drawing down reserve balances, rather than go into the market,” he said.

Also, the Fed doesn’t have the authority to pay interest on reserves held by government-sponsored enterprises Fannie Mae and Freddie Mac, leaving them free to lend any excess reserves. Some smaller banks also keep their reserves at larger banks rather than at the Fed, and don’t receive interest.

Jobless RateTo lean against inflation, the Fed will need at the start of a recovery to begin raising the reserve rate and the federal funds rate, even if unemployment is still high. The fed funds rate is the rate banks charge each other for overnight loans. The jobless rate will reach 9.5 percent in the final three months of the year, according to economists surveyed by Bloomberg.

“If you have to turn policy while unemployment is high, politicians are going to be screaming like mad that the Fed is taking away the punchbowl too early,” he said.

Bernanke and other Fed officials have voiced confidence they can snuff out any threat of surging prices even after pursuing an unprecedented policy of cutting the main rate to as low as zero and providing lending to nonbanks.

“I am not worried at all that the Federal Reserve’s balance sheet will generate an inflation problem,” William Dudley, president of the New York Federal Reserve Bank, said in an April 18 speech in Nashville.

Still, Dudley acknowledged “worry in some quarters that paying interest on excess reserves might not work very well as a tool for controlling the federal funds rate.”

This is the most asinine article I have read in quite some time. Yes, back in October Paulson and fellow “club” members pressured Congress into approving the paying of taxpayer monies in “interest” for the bank’s “reserves.” THIS IS THE MOST BLATANT CRIME I HAVE EVER SEEN.

Banks are allowed the PRIVILEGE of loaning money and charging USURIOUS interest rates and fees IF they hold enough in RESERVE to accomplish such lending without undo risk. The situation now is that THE BANKS HAVE NO REAL RESERVES despite what the fed puts out on their charts. The charts have been whipsawed because they are playing games with the TARP and other borrowed money and how it is counted. The banks have lent the government their near worthless crap in exchange for real taxpayer backed dollars and thus their reserves are BORROWED despite how they now claim it is not. They mark all their assets to fantasy and NOW CHARGE THE TAXPAYERS for the PHONY reserves that they supposedly hold.

Let’s take a look at the supposed non-borrowed reserves. Note how this was hugely negative and was whipsawed back to positive just prior to October of last year:

How or why did that change occur? Did the banks suddenly grow money? Did the TARP allow the banks to grow that much in supposed reserves? Remember, the FED doesn’t GIVE money away (cough, cough, bullshit), they only “loan” it. So, if the TARP money is borrowed and their “reserves” grew from the TARP, then their reserves are BORROWED. Yet, the chart above says that non-borrowed reserves are at their highest point in history! Amazing how that happens just before and after Congress agrees to pay them for their supposed reserves which is a concept that is deplorable to begin with.

So now we all of a sudden have massive “excess” reserves:

And as you can see, total reserves peaked right around the October time frame.

Now, if your intention is to stimulate the economy and to get “credit” (debt) flowing again, wouldn’t you want to encourage the banks to get their money out into the system? Or is it that “confidence” in the banks is more important?

Now they are claiming they can use it as a policy tool to incentive banks to hold reserves and slow the economy when the time comes? Isn’t that what they are already doing? Do they plan on paying more money we don’t have to the banks as if they can’t make enough already?

I AM SICK OF THEIR LIES, FALSE ACCOUNTING, AND BLATANT ROBERY. Paying banks money to hold reserves is sick, morally and ethically bankrupt. A bank is by rights already a privileged institution and keeping reserves is all that is asked for them to earn that privilege. Paying them for those reserves is asinine in the extreme. They are absolutely playing games with what reserves are, who holds them, and it is simply another excuse to take money and leave Americans further in debt.

DISGUSTING. These people belong in prison at best. They are, in fact, traitors to America and should be treated as such. Look up the penalty for treason.

Futures are down considerably again this morning with the /ES down in the 845 area just beneath the 848 pivot:

There were some strange movements last night in the gold futures, /YG. Just after the lockup, the price fell by more than $50 an ounce, but recovered most of it. Prices did wind up bleeding off and is currently down about $20 an ounce. The dollar initially rose, but has fallen back again this morning.

Bonds are higher, don’t ask me why or how. Deleveraging? Bernanke? The Treasury needing to borrow SIX TIMES its prior RECORD quarterly amount should have people running from our debt and burning our dollars! But then again the rest of the world is likewise as bad and the dollar and “safety” are definitely a perceived notion as fanciful as it may be.

And this morning Econoday is reporting that the ISCS store sales fell .7% last week, the worst rate in nearly 3 months:

Store sales fell back steeply in the April 25 week according to ICSC-Goldman's same-store index that fell -0.7 percent for a -1.7 year-on-year rate -- the worst rate in nearly three months.

Redbook comes out soon, we get some more Case-Schiller data, and consumer confidence comes out at 10 Eastern.

BAC shareholders get to vote tomorrow on whether to show CEO Ken Lewis the door – Adios Ken, couldn’t happen to a nicer guy.

And there’s more talk that both BAC and C will need more capital as a result of the “stress test” which they are going to deny, of course. Whatever, they are toast regardless… the only question is how much and for how long are our idiot politicians going to keep giving our money to them? Or, the better question is how long are the people going to allow the greatest robbery in history to continue before they are all shown the exit at the business end of a pitchfork? Hmmm… American Idol still on? Check. Donald Trump still on? Roger that, it’s going to be awhile.

Swine/Mexican/Baxter flu, what’s an investor to do? The Air Force flying 747’s and fighter jets over the Hudson river w/o even coordinating? Pakistan fighting off the Taliban only miles from their nuclear arsenal? Automakers owned by the government and their employees? Oh my.

798 is the next lower pivot after 848. The short term stochastic say that a rally or at least sideways action may be necessary to get the oscillators back off oversold, although the 60 minute slow does have a ways to go before it reaches oversold. For now it’s just chop until we can exit the range we’ve been in, it would take a drop below 825 or so to do that.

Monday, April 27, 2009

Math, it’s not fun when it works against you, and the Fed, the central banks, and your government are all working against you. The second fiscal quarter is the one where the revenues are supposed to be the strongest and borrowing the least. However, not this year:

WASHINGTON, April 27 (Reuters) - The U.S. Treasury Department said on Monday it expects to borrow $361 billion of marketable debt in the April-June quarter, up $196 billion from earlier estimates, as government spending soars in the deepest and longest recession in decades.

The amount is a record for the quarter, in which borrowing usually diminishes because most Americans' annual income taxes are filed by April 15. Borrowing needs include $200 billion to support Federal Reserve liquidity programs aimed at reviving lending after the housing market crash and surge in credit defaults.

The previous record borrowing for the April-June quarter is $60 billion in 2003. The Treasury cited weak revenues and greater spending to support economic recovery programs as among reasons for greater borrowing needs.

The Treasury said it expects to borrow $515 billion of marketable debt in the July-September quarter. In the January quarter it borrowed $481 billion, slightly less than earlier estimates.

The previous record for the quarter is $60 billion? That almost sounds quaint! Well, I think I know how to do simple math and that means that this year we are SMASHING THE ALL TIME DEBT RECORD BY A FACTOR OF 6! Six times more than ever before?!

The futures are down this morning about where they were last night, sitting right on the first level of support at the 848 pivot. Here’s a snapshot of the overnight action:

The dollar is up and back inside that triangle I showed. Bonds are up as well and this is a BIG week for bonds with auctions galore beginning today.

No economic data today, but Wednesday is the big day with GDP and the FOMC wordsmithing.

GM announced they are laying off another 23,000 workers, cutting 40% of their dealerships and shutting down the Pontiac name. They are also attempting to restructure their debt by offering 225 shares of stock to bondholders for each $1,000 in debt ($4.44) per share. GM is trading at a buck-eighty. The Bloomberg article I’m referencing doesn’t address the disparity just that they seek to reduce debt by $44 billion.

Ford is taking the opposite stance and say they are going to build more cars this year than last. Okkkkay, we’ll see how that works out for them.

So, as you remember, last Monday was a gap down that took the entire week to fill. Now we’re gapping down over the same range we gapped before. Is the swine flu sufficient to keep down? We’ll find out. 848 pivot first, then the 100dma at 830, then 798. The battle is on!

Going to have some Martin Armstrong stuff coming... answers to your questions and another article. Should be interesting.

Sunday, April 26, 2009

Max Kaiser in good form telling it like it is. Americans are being robbed, we are a bunch of pansies who should be rising up, the bankers are criminals, and Paulson belongs in jail. Nothing but the truth... (HT Glass... thank you!).

Very interesting but long Presentation by Eric Rosenfeld of MIT to an MIT classroom regarding the history, risk, and outcome of the LTCM (Long Term Capital Management) debacle… If you are already familiar with the history of what happened at LTCM, Rosenfeld’s lecture will be of great interest and if you’re not familiar, this is a great lesson in the risks involved with leverage and what the insiders of a risk taking firm where thinking.

Here is a link to a Wiki description of LTCM to give you a little overview as you view or just listen to Rosenfeld… Long Term Capital Management.